Mental accounting influences financial choices from "summary" of Advances in Behavioral Finance by Richard H. Thaler
The concept of mental accounting refers to the tendency of individuals to categorize their money into different mental accounts based on various factors such as the source of income or intended use. These mental accounts can influence individuals' financial decisions by affecting how they perceive and evaluate different financial options. For example, individuals may be more willing to spend money from certain mental accounts than others, even if the money is fungible and could be used for any purpose. Mental accounting can lead to suboptimal financial decisions because it can create artificial barriers between different types of money, leading individuals to make choices that they would not make if they viewed all their money as part of a single account. This can result in individuals spending money on less important expenses from one m...
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